The gaps in after-tax income between the richest 1% of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007 (the period for which these data are available), according to data the Congressional Budget Office (CBO) issued last week. Taken together with prior research, the new data suggest greater income concentration at the top of the income scale than at any time since 1928.

The survey does, indeed, show, as fellow tax bloggers Jim Maule and Linda Beale are sure to point out, that the rich have gotten richer. What it does not show, and what is not to be automatically inferred from it, is that the poor and the middle-class have gotten poorer.

Of course, I fully expect the tax-the-rich types to suggest that very thing. But by doing so they only betray one of their many faulty premises: Namely, that wealth, like energy, is finite and an increase in one individual’s wealth is always be matched by a commensurate decrease in another individual’s wealth.

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Comments

I'm sure the Center on Budget and Policy Priorities will be much happier with the 2008 and 2009 numbers when they become available.

Posted by: Claude | Jun 26, 2010 7:00:27 PM

I'm not concerned with wealth gaps and how others are doing. I'm concerned about whether or not I'm doing better.

Would it make people happy if they found that the gap had closed but everyone is worse off? Yes, probably a lot of idiots. People need to appreciate what more they have rather than be envious about others.

A reason for the "wealth or income gap": Smart people keep on doing things that are smart and make them money while stupid people keep on doing things that are stupid and keep them from achieving.

People who get an education, stay off of drugs, apply themselves, and save and wisely invest their earnings do a lot better than people who drop out of school, become substance abusers, and buy fancy cars and houses that they can't afford, only to lose them.

We don't have an income gap. We have a stupid gap. Guess which group voted for Obama.

Posted by: Woody | Jun 27, 2010 5:38:32 AM

"Guess which group voted for Obama?" Uhhh, let's see now, Martha Stewart? You betcha! Stupid AND rich?

Posted by: Mr. Biswas | Jun 27, 2010 6:55:26 PM

As Claude pointed out, income inequality is heavily driven by bubbles. We had a bubble in 1999, and we had a bubble in 2007, both popped, but you only show the result of one popped bubble.

Woody's point may be valid, but it begs the question, why have stupid people become so much more self destructive over the last 40 years. Stupid people have always been with us, but the results have been far more dramatic over the last 40 years.

In "The Bell Curve", Charles Murray claimed that the difference was a change in morality. In the old days, morality was defined by "Right and Wrong, divinely given", but in the 60s, morality was changed to "It depends on the consequences". Consequential morality may be beneficial to smart people, but to stupid people, it was a disaster. They lost traditional morality which they could understand, for consequential morality which they could not.

I guess you can disparage stupid people to make yourself feel better, but if you play a part in throwing away traditional morality, you are partly to blame yourself.

Posted by: James | Jun 27, 2010 7:04:34 PM

And those of us who do smart things will continue to be punished by this regime. Why? Because we don't need them, and that just pi$$e$ them off!! John Galt 2010.

Posted by: Nick Reynolds | Jun 27, 2010 7:05:36 PM

Ummm, in 1979 I was technically in the bottom 5th. Barely of age. 30 years later - I'm not. Guess what I did?

Yes, I participated in the greatest bull market and economy in history.

So what is their definition of the top 1%? Salary or personal wealth?

Insteresting they chose the season of malaise to start with, why not 1977 for a complete 30 years?

And can't wait for 2008 numbers! OFF THE CLIFF!

Posted by: Sandy P. | Jun 27, 2010 7:06:44 PM

I went over these numbers going all the way back to the 20s in a sociology course. The fact is, there never is much variation. You can't redistribute wealth (that or you'd have to conclude the democrats have never been serious about it). You can make everyone poorer though... that’s easy. With our inability to build new power plants, regulation, and hostile environment to business.. I’m sure we will reprove this fact (I’d have rather have learned it from the various socialist countries so we could have avoided experiencing it)…

Posted by: thomass | Jun 27, 2010 7:12:46 PM

uhm... people like Martha Stewart are part of the 1%, so their votes don't make an election. I think we should look for the said stupid people in the 40%+ of those who don't pay income tax, live on the line of poverty and wield an enormous voting power.

Posted by: dmitryb | Jun 27, 2010 7:16:19 PM

"We don't have an income gap. We have a stupid gap. Guess which group voted for Obama."

You are a moron who has no idea about how the world really works. George Bush? Sara Palin? Sony Perdue? There are FAR more idiots in the GOP than in the Democratic party, though both parties do have their share.

Posted by: mike | Jun 27, 2010 7:24:56 PM

Correction: Martha Stewart is not stupid. She is wealthy and smart. Try again, Woody.

Posted by: Hate the left | Jun 27, 2010 7:25:26 PM

Shouldn't tax lawyers be advocating for a few more thousand pages of regulations and fees on the income of wealthy customers, er... citizens? The middle fifth is obviously getting killed here, even if you believe the *official* inflation numbers. In the long run, that's going to destroy the consumer demand that keeps the economy and the growth at the top going.

Not everyone is a genius, but a lot of geniuses or close are trying to take advantage of those who aren't. Those like Glenn Reynolds and "Woody" (who might in fact be Reynolds for all we know) would abandon them to their fate, letting smarter people take advantage of them. That's anti-American and bad policy.

And, a huge wealth gap isn't just bad policy, it's also dangerous, leading to social strife and perhaps worse.

Listening to the "Woody"/Glenn Reynolds types would put us even further down the road to Idiocracy.

And how much of that gap is associated with small business owners unable to become large business owners because the government has cooked the books in terms of regulations and taxes? How much is because the rich can afford to pay politicians to make up rules and laws which kill their competition?

The folks who used to be known as "liberals" in the classic sense were also against big "too big to fail" companies - too much financial power can be just as destructive to liberty as too much political power. When they both get together it's murder.

Posted by: K | Jun 27, 2010 7:37:30 PM

Woody, your points are well taken, and not only by me: Glenn Reynolds put them up on Instapundit. But I've got to say this: It was only a couple of weeks ago that he posted this:

I’ll tell you where you would have found us over the past ten years, while the stage was being set for everything to go to hell. We were at school, in the library, doing exactly what we were supposed to be doing. And if there’s one great sin of my generation, it’s that we blindly listened to everything that our parents and teachers told us about the value of a college education, of a “liberal arts” degree, and the risks of heavy student loan debt. . . .
Did my generation grow up with unreasonable expectations about life, employment, and the value of a degree? Absolutely. But before you’re so quick to judge us, please remember that for the vast, vast majority of our admittedly short lives, we worked intensely hard to do what we were told was the right thing to do, the only thing to do, by absolutely everybody in authority. The worst you can really say about us is that we did what we were told when we were children.

None of this is to endorse dropping out of school, become substance abusers, etc. Well, maybe dropping out of "school" at some point . . . But a lot of people who behaved quite well in life are still feeling like they're on the wrong end of the "stupid gap" themselves! They just don't make stupid like they used to, I guess.

I was in the bottom fifth of income in 1989 and the top fifth of income in 2007. This study doesn't account for cross-quintile income mobility--much less the fact that many of the people in the bottom fifth today immigrated from countries where they made far less income than they're making in the US today.

That's leaving aside the fact that people in the bottom fifth of income today have affordable access to technological wonders that the top 1% in 1979 didn't have.

Well, since we don't seem to count govt payments as income, and you can't have income less than zero, I'm not wildly concerned about how far the right side of the income curve moves quite so much as where most of those on the left side of the curve actually are.

I suggest a thought experiment. We get together a big bunch [say 10,000 or so] families from the bottom 5% of the income curve and show them how they live now compared to how people in that group lived in 1979 [and why start in 1979? I remember that year *very* well, and it was pretty miserable, economically, and perhaps the gap would be different a couple of decades earlier] and let them choose if they want to live that way.

Of course, when you have a society like the USSR, or China, or Cuba, or North Korea, there's hardly any difference in income, right? Oddly enough, though, there do seem to be those who live waaaaaay more comfortably than most of the rest.

Posted by: JorgXMcKie | Jun 27, 2010 7:51:29 PM

Another problem with the data is that there is movement within the groups. For instance, in 1979 I was a poor married college student and probably in the bottom 10% of all income earners, and now I am in the top quintile. I am not so sure that the lower groups are losing ground, so much as their starting position is stagnant.
What would be really interesting is how many people stayed in their quintile. After all, even Bill Gates in 1979 was not in the top quintile, but look where he is now.

What about people who get an education, occasionally enjoy drugs, apply themselves, save and wisely invest?

You're overlooking some folks, bunky... not everyone is an automaton...

Posted by: wondering | Jun 27, 2010 8:00:39 PM

Jack Kemp used to talk about the investment society as the only way to create real wealth across all income groups. 99% of us cannot achieve wealth on our salary alone, we need to invest. But guess what being a disciplined investor is hard it means putting off purchases today to save, I have trouble consistently doing that I use the "life is too short" excuse :).

Posted by: bobbymike | Jun 27, 2010 8:02:42 PM

Thanks, Woody.
We needed that

Posted by: Jim | Jun 27, 2010 8:08:48 PM

"that wealth, like energy, is finite"

Wealth isn't the issue, it's income. By definition, time for an individual is finite. They can divide that time into production or consumption. Ergo, their consumption is finite... it's bounded by time.

If consumption is finite, then production will be, too, as it tends to mirror consumption.

If production is finite, then work is finite.

In a truly productive society, work must shrink over time. And that's exactly what the facts show, from 60-hour workweek in post Civil-War era, to 48-hour during the Long Depression to 40 hours during the Great Depression.

Your premise is a sad joke and you have no idea of what you're talking about because you've adopted ideology instead doing your own footwork and research.

I've always wondered how fast opinion in the United States would change on the subject of progressive tax rates if somebody proposed that the top 10 percent of income earners in the world pay the top U.S. income tax rate to redistribute to the rest of the world.

How many of our (U.S.) poor would be considered rich in this context?

Posted by: Jeff Mitchell | Jun 27, 2010 8:17:59 PM

"Guess which group voted for Obama?"

Warren Buffet and George Soros voted for Obama.

Wait, was that a serious question?

Posted by: Steve | Jun 27, 2010 8:59:43 PM

"Smart people keep on doing things that are smart and make them money"

If recent events are any guide, the smart things they do which make them money involve bribing the politicians to give them taxpayer dough.

Dear Woody: That's a good hand you're playing: get an education, stay off of drugs, apply themselves and save and wisely invest their earnings. It should be a winner. But it is losing to this hand:

get an Ivy League "education" i.e. a fat Rolodex, be sure to have liberaliberaliberal opinions, use that fat Rolodex to get fatter loot (e.g. Rahm Emanuel becoming a Fan/Fred director and an "investment banker" after his stint of lying for Billyboy, cut all the corners you can while howling that such corner cutters are public menaces. As a wild card, membership in an officially approved persecuted minority is most helpful. You will rise and rise with this hand, and by appealing to class envy across the stupid gap, fool enough of the suckers enough of the time to get in a position where you can "change" everything. By this time you'll be big enough to blame your failures on your enemies or the systemic racism/genderism/sexism/baloneyism inherent in Amerikkkan society.

A grim picture, Even so, keep playing that hand you've described well. It's the nation's best hope.

Sincerely yours,
Gregory Koster

Posted by: Gregory Koster | Jun 27, 2010 9:39:59 PM

Here's the reason for the income gap: Zero will always be zero. But numbers have no upper limit.

People who are economically worthless to society will always be worth zero.

People who are economically valuable to society continue to provide that value and amass wealth.

A society without a growing gap between zero and infinity has a name: third world socialist stagnation.

Posted by: John | Jun 27, 2010 9:49:42 PM

Here's another smart thing: If you're going to have children, get married and stay married. Having children out of wedlock increases that likelihood of you and your children failing in life.

Posted by: Noah Nehm | Jun 27, 2010 10:01:54 PM

"There are FAR more idiots in the GOP than in the Democratic party"

I don't know that that's true. Granted, it's not a perfect proxy for intelligence, but education tends to shift ones politics to the right, notwithstanding screeching from the right about colleges indoctrinating students with leftist dogma.

"Warren Buffet and George Soros voted for Obama.

Wait, was that a serious question?"

So if Kelsey Grammer and Jon Voigt voted for McCain, that must mean all actors are Republicans.

Posted by: J | Jun 27, 2010 10:15:13 PM

"What it does not show, and what is not to be automatically inferred from it, is that the poor and the middle-class have gotten poorer."

Actually, my experience tells me that exactly the opposite is true. As the rich get richer, they drag others up the income scale with them. Bill Gates created enormous wealth for himself, but there a many ion Microsoft's inner circle who are also quite well-off by anyone's standards.

Wealth is not a zero-sum game, and the politicians who would penalize wealth only impoverish all of us.

Posted by: CurlyDave | Jun 27, 2010 10:15:50 PM

"Zero will always be zero. But numbers have no upper limit."

Well said, John. Statistical illiteracy is one of the great failures of modern public(?) education. The bottom fifth stays relatively constant because their contribution to society remains near zero. But the potential contributions of the top few percent can grow considerably under the proper conditions. At which point we can either tax away their future motivations, or allow those best and brightest to reinvest in the societies they improve as they see fit. The latter is almost certainly more desirable than a room full of career bureaucrats making the call.

In the more homogenous societies (like Scandanavia) there is a stronger argument to me made for income redistribution. But in nations like the US, where the top 1% share almost nothing in common philosophically with the lowest quintile, what argument can be made? If a millionaire in the US owes his slack-jawed contrymen a portion of his wealth, why does he not also owe it to those in *truly* poor conditions in Africa or Asia? He has nothing in common with either demographic other than a tax jurisdiction.

Posted by: euphrosyne | Jun 27, 2010 11:00:10 PM

So, can we figure out what "the gap" measures? Does it show differences in yearly income? Or in net worth? Or, in discretionary spending? In ability to purchase sufficient food and shelter?

Don't bother trying. It doesn't matter.

No matter whether the bottom 5% cannot afford life-sustaining calories, or simply cannot buy as many new video games as the top 5%. It's unimportant that our federal definition of "poor" includes many home-owners (about 35% of the "poor" own homes, actually). "Poor" is a moving target, defined by those who have the most to gain by expanding the class.

Most of the time, we use graphs to represent some particular factual point. When we talk about graphs, we're usually referring to the underlying factual scenario that the graph represents. Not so in this case.

Here, we come to the essence of liberalism: irrespective of what the graph actually shows, it is the gap itself, the gap qua gap, that so enrages liberals.

Liberals are not concerned with objective levels of wealth and sustenance - they are not concerned with possible starvation, or lack of warm clothing or transportation or medicine or clean water or fuel . . .

Liberals are simply consumed by envy.

The gap itself is what enrages them. Doesn't matter what the gap means in the day to day life of the bottom 5% - the very existence of the gap is what must be changed! No matter what I have - those other people cannot have more than I have!

When Obama takes actions that kill off all production and reward sloth and venality, keep in mind - it's a feature, not a bug.

Posted by: bobby b | Jun 27, 2010 11:13:18 PM

This whole "gap" thing is only meaningful when based upon the tacit premise that those at the bottom don't do well *because* those at the top do. In truth they are are as statistically independent as coin flips. Marx's theory of surplus value was the economics upon which the causal notion was predicated, and it hasn't been taught in a serious economics department for generations now. Since the income Moral is as moral does, and the fact that one group makes X and another group makes Y, and that both numbers move around a little over time has no moral meaning without economics. Besides, from year to year when we talk about the top 1% of income earners we're not talking about the same group of people. We're all constantly churning through the quintiles, all of them.

While Woody get's Reynolds' "Comment of the Day", 24AheadDotCom surely gets the "Dunce Cap of the Day". Argument by assertion and ad hominem. I hate to burst your bubble, but Economics is not a zero-sum game, despite what your Marxist professors told you. No sir, it's fools like you that are leading us "further down the road to Idiocracy".

Success is "anti-American"? Really?

Posted by: Spiny Norman | Jun 27, 2010 11:32:33 PM

Steve@11:59 understood perfectly my snide rebuttal @9:55 to Woody@8:38, but it went completely over the head of Hate_the_Left@10:25. I guess we know whom Woody voted for.

Posted by: Mr. Biswas | Jun 28, 2010 12:43:12 AM

What is being seen is not a difference in the ability to address needs of individuals via income, that is to say the basic daily living necessities of food, clothing and shelter, but the differences in want. Going by a needs based analysis the poor in the US are doing far, far better than the middle class or even the rich in the majority of Nations on the planet.

Consider that in 1979 you were just 9 years after the last census which would drop asking about: indoor plumbing, availability of telephone, if you owned a tv (which would change to a color tv ownership question), car ownership which would surpass one per person during that decade (if memory serves). Between 1970 and 1979 you would gain the ability to have low cost electronics to meet these prior 'needs' and even the question of starving for a number of days out of the year would be relegated to the wayside. Items just becoming widely available in 1979, like the VCR, walkman, microwave ovens, and a wide variety of household appliances like washers and driers, would change the definition of what it meant to BE poor in America as compared to other Nations.

By 1989 you would have devices that could not have been dreamed about in 1970, like the cell phone, desktop PC, CD players and recorders for music devices/PCs/home television, cable tv made serious inroads during that decade between '79 and '89... and yet there has always been a bottom portion of the population in terms of income. The disparity of what could be bought and its utility was diminishing, so that by 1999 the differences between a brand new BMW and a five year old Honda Civic was one of newness and a few bells and whistles. This would be the era of the poor purchasing $100 name brand status sneakers, not $10 canvas hightops. The music CD that a poor person got that was 3 years old had the exact, same quality of one pressed new.

Those days of having to make decisions about having food to eat or clothing disappeared when obesity became an 'affliction' of the poor, who wore $100 sneakers and name brand clothing by famous makers. By the time you get to 2009 an argument about 'affordable healthcare' means that it is readily available and we just have a very poor way of covering for the poor that involves far too many middlemen and not enough money going directly to charities that serve the poor in the health field... and we turn no one away and see an increase in cost because the value of treatment is one we agree to carry as a citizenry. Mind you we stopped talking about hunger in America over 20 years ago. Or not having enough clothing. Or not having a color tv, or car, or dishwasher, or clothes washer... and by the marvel of Moore's Law the poor, even the destitute, can afford cell phones, PC access if not outright ownership of old PCs, and have persnal entertainment devices that can store more than one can listen to in a year.

The poor will always be there in a comptetative system.

The question of addressing the needs of the poor is largely finished until we ruin it by trying to even out the infinite wants that go far above basic daily living needs. I grew up starting at the bottom-most part of the middle class which meant that I had poor relatives that I visited constantly. By the mid '80s they were less 'poor', better fed and only had marginally better incomes. Something changed in America that we are unwilling to talk about: we have uplifted the poor, and greatly. And that is making 'income disparity' one of those who want more and can't earn the money for it and those who earn more and can. And someone becoming rich has not impoverished the poor over that period of time, just the opposite has happened.

Oh yeah, poor people are stupid. I guess that means I am a dumb ass. Of course, I stayed off drugs, I never broke the law, I never asked for anything, I always worked, I went to school...but I also went through a divorce, a death in the family, and a change in employment that had nothing to do with any choices I made.

That makes me stupid from the me rich me smart you poor you dumb club.

I vote as a conservative, I am not some nanny state whiner, but the idea that poor people are just a bunch of dummies is so elitist that a Democrat might have said it.

Posted by: Terrye | Jun 28, 2010 3:42:20 AM

"Warren Buffet and George Soros voted for Obama."

Well, we know who they publicly supported. But Soros and Buffet have always talked their book; which strikes at the heart of this stupid/non-stupid discourse.

Generally, people vote according to their perceived self-interest. Whether or not one's understanding of self-interest is correct or ethical is a debate that could keep us here all day.

Posted by: grichens | Jun 28, 2010 4:44:44 AM

24ahead wrote: "And, a huge wealth gap isn't just bad policy, it's also dangerous, leading to social strife and perhaps worse."

I've been hearing that for a long time. The "oppressed" in this country live like royalty compared to previous oppressed populations who actually did revolt. This generation's oppressed will do no such thing. They will whine, then they will go to McDonald's, then go home and watch TiVo's on their 50" screen's that they bought on credit. The "oppressed" are fat and entertained. Don't you read history? How do you think the Romans lasted so long with such a large urban poor populations? Bread and Circus.

Posted by: John | Jun 28, 2010 5:10:17 AM

Anyone who uses the term "Amerikkka" in an online discussion, automatically loses.

A nefarious conspiracy of the greedy...or simple mathematics? Anybody with half a brain--or non-zero math aptitude--realizes that the lower end of the income scale would have to experience a truly explosive income growth percentage for income inequality to decrease.

If rich person A's income rises by 5% to $525,0000, poor person B's income would need to rise by 100% to $50,000 in order for 'income inequality' not to increase.

Increasing income inequality is a mathematical necessity that can only be remedied by actually stealing (government-sanctioned or otherwise) private property from the rich. Which is what the left's economic program is all about when the BS is stripped away.

Posted by: PD Quig | Jun 28, 2010 7:29:36 AM

Besides the fact that, as several people above have noted, our "poor" live like royalty compared to the poor in many (most?) other nations, there's something else that's not being addressed here: Not only should the government not be in the income-equalizing business, but those who are truly in need should not be using the government as an avenue of first resort; if anything, it should be their fourth option, only to be used if the first three fail.

Only if the person(s) in need cannot receive help from these three places should government assistance even be considered. (And if someone has managed to get to the point that their family, friends and church won't even help them out in a time of need, perhaps that person should take a long look inward to find the true source of the problem.)

"Not everyone is a genius, but a lot of geniuses or close are trying to take advantage of those who aren't."

That's basically the left's game in a nutshell. Take away everyone's freedom in the name of the protecting the minority which they argue can not handle taking care of themselves.

Just saw it in action with healthcare....

Posted by: Thomass | Jun 28, 2010 10:01:21 AM

Hang on... "a lot of geniuses... are trying to take advantage of those who aren't." Doesn't that mean that the geniuses are the Evil Republicans? Mark and 24aheadetc. should maybe get together on their comments so they're not talking at cross purposes.

As long as there are quintiles, there'll be a highest and a lowest (needless to say). As long as there're a highest and a lowest, there'll be demogoguery concerning "[disgraceful/growing/looming/whatever] income gap" and "social justice." Not to mention "greedy corporations," "fat-cat Republicans," "overpaid CEOs," people who have "fallen through the cracks," "the working poor," and "struggling single moms." It isn't that these concepts have no referent in the real world, mind you - just that they're not applied to as a representation of the real world but rather as political theater props.

Bravo/a to PDQuig, above, for pointing out the basic math that applies.

Posted by: Jamie | Jun 28, 2010 10:59:16 AM

I think Thomas Jefferson summed this up quite well when he said,

"I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them."